Highlights:
- The German flash manufacturing PMI printed its lowest since September 2023 while the French services PMI fell much more than expected to its weakest since March.
- Concerns regarding the growth outlook in both France and Germany and the associated dovish ECB repricing has weighed on the euro, which is among the worst performers in G10 today.
- US flash manufacturing and services PMI highlights the calendar as markets await further comments from Fed officials. The RBA rate decision is due during APAC on Tuesday.
US TSYS: Steepening Theme Extends, Aided by Soft European PMIs
- Treasuries have twist steepened, with soft European PMIs extending last week’s steepening theme. This theme was driven by ded by the Fed’s 50bp cut before a dovish Waller Friday – see our separate post on positioning swings backing this up.
- Cash yields are 2.3bp lower (2s) to 0.6bp higher (30s), with 2s10s at 17.7bps (+2.5bp) having earlier set fresh two-year highs at 18.1bps.
- TYZ4 sits at 114-24 (-03) having remained within Friday’s session throughout, amidst reasonable cumulative volumes of 320k.
- Friday’s low of 114-16 probed support at 114-23 (20-day EMA) whilst to the upside, a bull trigger is seen at 115-23+ (Sep 11 high).
- Data: Chicago Fed national activity Aug (0830ET), US mfg, services & composite PMIs Sept prelim (0945ET)
- Fedspeak: Bostic (0800ET), Goolsbee (1015ET), Kashkari (1300ET) – see STIR for details
- Bill issuance: US Tsy $76B 13- & $70B 26W bill auctions
STIR: Fed Rate Path Near Post-FOMC Dovish Lows, More Fedspeak Ahead
- Fed Funds implied rates have seen an additional helping hand lower from soft European PMIs to extend Friday’s slide on a dovish Waller.
- It leaves a near-term rate path close to dovish extremes seen after last week’s FOMC announcement and SEP before a lift with Powell’s press conference.
- Cumulative cuts from 4.83% effective: 39bp Nov, 75bp Dec, 110bp Jan and 179bp June.
- Today’s schedule sees three Fed speakers all for the first time since the FOMC. With Kashkari’s topic likely limiting a discussion on mon pol, it should be a case of a somewhat hawkish Bostic first before an out and out dovish Goolsbee later on.
- 0800ET – Bostic (’24 voter) speech on economic outlook (text + Q&A). He said Sep 4 that he saw risks to inflation and employment as now balanced but was not quite prepared to declare victory over inflation.
- 1015ET – Goolsbee (’25) fireside chat on mon pol (text TBD). Goolsbee said Sep 6 that there was an overwhelming case for multiple rate cuts, that he saw more warning signs about the labor market and was concerned that tight policy is raising recession risk.
- 1300ET – Kashkari (non) Q&A on childcare (no text)
STIR: OI Points to Mix of Short Cover & Long Setting in SOFR Futs Post-Waller
Friday’s uptick in most SOFR futures and OI data points to a mix of net long setting and short cover across the strip, with the most aggressive moves coming in the very front end.
- Comments from Fed Governor Waller triggered dovish repricing late in the NY morning.
- ~39bp of cuts are now priced into Fed funds futures for the November FOMC, with ~75bp of cuts showing through year end. That compares to ~35bp and ~72bp late Thursday/early Friday.
| 20-Sep-24 | 19-Sep-24 | Daily OI Change | Daily OI Change In Packs | ||
|---|---|---|---|---|---|
| SFRU4 | 1,387,346 | 1,414,456 | -27,110 | Whites | +11,743 |
| SFRZ4 | 1,351,442 | 1,316,785 | +34,657 | Reds | +18,049 |
| SFRH5 | 1,113,582 | 1,110,549 | +3,033 | Greens | +23,319 |
| SFRM5 | 900,282 | 899,119 | +1,163 | Blues | -5,112 |
| SFRU5 | 689,330 | 678,974 | +10,356 | ||
| SFRZ5 | 984,101 | 982,115 | +1,986 | ||
| SFRH6 | 718,223 | 720,114 | -1,891 | ||
| SFRM6 | 638,475 | 630,877 | +7,598 | ||
| SFRU6 | 543,378 | 542,664 | +714 | ||
| SFRZ6 | 616,595 | 600,493 | +16,102 | ||
| SFRH7 | 347,273 | 345,046 | +2,227 | ||
| SFRM7 | 298,795 | 294,519 | +4,276 | ||
| SFRU7 | 242,168 | 249,562 | -7,394 | ||
| SFRZ7 | 233,258 | 233,794 | -536 | ||
| SFRH8 | 176,825 | 175,166 | +1,659 | ||
| SFRM8 | 152,352 | 151,193 | +1,159 |
US TSY FUTURES: CFTC CoT Reveals Record Net Short in TY Futures
The latest CFTC CoT report revealed the largest ever net short non-commercial TY position.
- By investor sub-group, asset managers extended net longs in most contracts, while hedge funds added to net shorts across much of the curve.
- A reminder that this CFTC CoT report covered the CPI data, pre-blackout Fedspeak and the ‘unofficial’ guidance towards the 50bp cut from both the WSJ & FT.
- The actual delivery of the 50bp Fed rate cut came the day after the reporting cut off period.
- CFTC CoT positioning metrics will be skewed by the presence of basis trades.
Source: MNI/CFTC/Bloomberg
US TSY FUTURES: Mixed Positioning Moves During Waller-Driven Curve Steepening
OI and Friday’s twist steepening of the futures curve points to a mix of long setting (TU & FV), short cover (TY, UXY & US) and short setting (WN).
- Short cover in US futures provided the largest DV01 equivalent swing.
- A reminder that dovish comments from Fed’s Waller promoted steepening of the curve and pulled futures sway from session lows ahead of the weekend.
| 20-Sep-24 | 19-Sep-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
|---|---|---|---|---|
TU | 4,382,657 | 4,365,258 | +17,399 | +682,241 |
FV | 6,410,596 | 6,392,610 | +17,986 | +797,356 |
TY | 4,902,690 | 4,905,740 | -3,050 | -205,017 |
UXY | 2,126,529 | 2,133,812 | -7,283 | -680,892 |
US | 1,745,306 | 1,761,738 | -16,432 | -2,287,982 |
WN | 1,703,761 | 1,701,934 | +1,827 | +402,023 |
|
| Total | +10,447 | -1,292,271 |
EUROZONE DATA: Composite PMI Re-Enters Contractionary Territory in Sep Flash
- The Eurozone September flash PMI was unsurprisingly weaker than consensus for both services and manufacturing following this morning’s German/French data. The September composite PMI was 48.9 (vs 50.5 cons, 51.0 prior), its first month in contractionary territory since February this year.
- Although output rose in the Eurozone excluding Germany and France, the expansion was weak, suggesting conditions are subdued across the region. Further details will be available in the Spanish and Italian PMIs next week.
- The German flash manufacturing PMI printed its lowest since September 2023 at 40.3 (vs 42.3 cons, 42.4 prior). Services remained in expansionary territory at 50.6, but consensus had expected a stronger 51.0 print (vs 51.2 prior).
- The French services PMI fell much more than expected to 48.3 (vs 53.1 cons, 55.0 prior). This was the joint weakest reading since March this year and represents a significant unwind of last-months Olympic-induced bounce. The manufacturing PMI was also a little lower than expected at 44.0 (vs 44.2 cons, 43.9 prior) and has been in contraction since January 2023.
POLITICAL RISK: IDF Launches New Wave of Airstrikes on Hezbollah in Lebanon
Tensions in the Levant remain extremely high amid the risk of a regional escalation. The Israeli Defence Forces (IDF) have confirmed a new wave of airstrikes against Hezbollah targets in southern Lebanon. This follows a weekend of Israeli airstrikes and Hezbollah rocket launches into northern Israel. The IDF has publicly warned Lebanese citizens to move away from buildings or civilian homes linked to Hezbollah, claiming that these buildings will be targets for airstrikes.
- The US has sought to dissuade Israel from raising the frequency of strikes to the point where an all-out war could break out with Hezbollah. On 22 Sep, US National Security Council spokesperson John Kirby said on ABC “We don’t believe that a military conflict, and we’re saying this directly to our Israeli counterparts... we don’t believe that escalating this military conflict is in their best interest.”
- As CNN notes, "Key players have at times appeared to walk right up to the brink, but tensions have de-escalated given the grave consequences of an all-out war in the Middle East. But almost every week brings another violent incident that sets the region on high alert once again, with fears that an all out war would drag in the entire region, as well as Israel’s chief ally the United States."
- As such, the situation needs to be closely observed for signs that the conflict could move to an on-the-ground offensive that risks regional escalation.
FOREX: EURGBP Extends Below Trendline Support, Lowest Since August 2022
- Continued resilience for the pound and the broad-based single currency weakness on Monday has seen EURGBP (-0.26%) hit the lowest point since August 2022. Desks continue to note that at the current juncture, support for the Pound is emanating both from its risk beta as well as solid growth momentum and a cautious central bank.
- The trendline break below 0.8400 and the subsequent breach of key support at 0.8383, the Jul 17 low, are technically significant and represent a resumption of the medium-term downtrend. Initial targets for the moves are 0.8340, the Aug 2 ’22 low and 0.8311, 3.00 projection of the Aug 8 - 13 - 14 price swing.
- Goldman Sachs noted that while long GBP positioning looks stretched on some metrics, they do not see that as enough of a headwind when the broader pro-cyclical backdrop is driving gains and is likely to remain supportive.
- Chancellor Reeves is due to deliver her speech at the Labour Party Conference today, with the budget just over 5 weeks away (30 October).
FOREX: EURJPY Underperforms Following Weaker Eurozone Data
- Concerns regarding the growth outlook in both France and Germany, and the associated dovish ECB repricing, has weighed particularly on EURJPY given the ongoing sensitivity of the Japanese yen to adjustments in core fixed income markets.
- EURJPY trades 0.70% lower today having been as low as 159.05 in early trade. A bear cycle remains intact and the last week’s recovery is considered corrective. Moving average studies are in a bear-mode position and this continues to highlight a dominant downtrend. An extension lower would refocus attention on the key support at 154.42, the Aug 5 low.
- There remains a strong cluster of support between 153.49-154.42 (shown below) and pivot support at 151.69 remains a notable target should we see a deeper correction lower.
- Upside risks for the cross are centred around the latest BOJ rhetoric. As a reminder, yen strengthening over the past two months has eased upside inflation risks and made a rate hike less necessary in the short term, Bank of Japan Governor Kazuo Ueda said on Friday. Resistance for the cross moves down to 161.76, the 50-day EMA.
FOREX: Broad EUR Weakness as Eurozone PMI Data Disappoints
- The Euro has come under substantial pressure on Monday amid a broad set of weaker-than-expected Eurozone PMI data. Concerns regarding the growth outlook in both France and Germany, and the associated dovish ECB repricing, has weighed on the single currency with EURUSD down 0.60% as we approach the US crossover.
- The Euro has weakened in equal proportion against the likes of AUD, NZD and CAD, however, EURJPY is a relative outlier given the ongoing sensitivity of the Japanese yen to adjustments in core fixed income markets.
- EURUSD has slumped back below the 1.11 handle at typing, although is yet to test the post-Fed lows of 1.1069. Spot does trade back below the 20-day EMA, intersecting today at 1.1088. A close below this level is required to signal scope for a deeper retracement. Below here, a key level remains at 1.1002, the Sep 11 low.
- For EURJPY, a bear cycle remains intact and the last week’s recovery is considered corrective. Moving average studies are in a bear-mode position and this continues to highlight a dominant downtrend. An extension lower would refocus attention on the key support at 154.42, the Aug 5 low.
- Continued resilience for the pound sees EURGBP hit the lowest point since August 2022. The break of 0.8400 and key support at 0.8383, the Jul 17 low, are technically significant and represent a resumption of the medium-term downtrend. Initial targets for the moves are 0.8340, the Aug 2 ’22 low and 0.8311, 3.00 projection of the Aug 8 - 13 - 14 price swing.
- US flash manufacturing and services PMI highlights the calendar later today, as markets await further comments from Fed officials. The RBA rate decision is due during APAC on Tuesday.
RATINGS: Portugal Positive at Fitch, DBRS Upgrade Ireland & Affirm France
Sovereign rating reviews of note from after hours on Friday included:
- Fitch upgraded Croatia to A-; Outlook Stable
- Fitch affirmed Portugal at A-; Outlook revised to Positive
- Fitch affirmed the United Kingdom at AA-; Outlook Stable
- Morningstar DBRS confirmed Cyprus at BBB (high), Trend changed to Positive
- Morningstar DBRS confirmed Finland at AA (high), Stable Trend
- Morningstar DBRS confirmed France at AA (high), Stable Trend
- Morningstar DBRS upgraded Ireland to AA, Stable Trend
- Morningstar DBRS confirmed Norway at AAA, Stable Trend
- Scope Ratings affirmed Latvia at A-; Outlook Stable
- Scope Ratings affirmed Lithuania at A; Outlook revised to Positive
EUROPEAN ISSUANCE UPDATE
ESM Syndication: Final terms
- E2bln WNG of the new Sep-27 ESM-bond. Spread set at MS+8bps (guidance was + 9 bps area), books in excess of E3.9bln.
EU auction results
- E2.494bln of the 2.875% Oct-29 EU-bond. Avg yield 2.491% (bid-to-cover 1.28x).
- E2.326bln of the 4.00% Apr-44 EU-bond. Avg yield 3.287% (bid-to-cover 1.36x).
Belgium auction results
- E1.017bln of the 0.90% Jun-29 OLO. Avg yield 2.319% (bid-to-cover 1.87x).
- E1.009bln of the 3.00% Jun-33 OLO. Avg yield 2.658% (bid-to-cover 2.24x).
- E791mln of the 2.75% Apr-39 Green OLO. Avg yield 3.074% (bid-to-cover 1.83x).
EQUITIES: Last Week's Gains Reinforce Bullish Theme in E-Mini S&P
- Eurostoxx 50 futures traded higher this week as the contract extends the recovery since Sep 10. It is still possible that recent gains are corrective. MA studies remain in a bear-mode position and this highlights a downtrend. A reversal lower would refocus attention on key short-term support at 4757.00, the Sep 6 and 10 lows. Key resistance to watch is 5024.00, the Sep 3 high. A break would cancel a bearish theme and strengthen bullish conditions.
- A bull cycle in S&P E-Minis remains in play and last Thursday’s gains reinforce the current bullish condition. The contract has traded through a key and major resistance at 5785.00, the Jul 16 high and a bull trigger. A clear break of this hurdle would confirm a resumption of the long-term uptrend. Sights are on the 5800.00 handle next. First key support is 5608.93, the 50-day EMA. Initial support lies at 5657.35, the 20-day EMA.
COMMODITIES: WTI Futures Maintain a Firm Tone at the Start of the Week
- WTI futures traded higher last week and maintained a firmer tone. The recovery since Sep 9, appears - for now - to be a correction. The 20-day EMA, at $70.27, has been pierced. The next key resistance is $72.46, the 50-day EMA. Note that moving average studies are in a bear-mode set-up, highlighting a dominant downtrend. A reversal lower would refocus attention on $64.61, the Sep 10 low and bear trigger.
- A bullish structure in Gold remains intact and the metal has traded, once again, to a fresh all-time high. The move higher confirms a resumption of the primary uptrend and maintains the bullish price sequence of higher highs and higher lows. Moving average studies are in a bull-mode set-up, highlighting a clear uptrend and positive market sentiment. The focus is on $2642.7 next, a Fibonacci projection. Firm support lies at $2539.0, the 20-day EMA.
MNI (LONDON)
| Date | GMT/Local | Impact | Country | Event |
| 23/09/2024 | 1200/0800 |  US | Atlanta Fed's Raphael Bostic | |
| 23/09/2024 | 1300/1500 |  EU | ECB's Cipollone statement on digital euro at Hearing | |
| 23/09/2024 | 1345/0945 | *** | US | S&P Global Manufacturing Index (Flash) |
| 23/09/2024 | 1345/0945 | *** | US | S&P Global Services Index (flash) |
| 23/09/2024 | 1415/1015 | US | Chicago Fed's Austan Goolsbee | |
| 23/09/2024 | 1530/1730 | EU | ECB's Cipollone in panel discussion at House of the euros | |
| 23/09/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 23/09/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 24/09/2024 | - |  SE | Riksbank Meeting | |
| 24/09/2024 | 0030/0930 | ** |  JP | Jibun Bank Flash Japan PMI |
| 24/09/2024 | 0430/1430 | *** |  AU | RBA Rate Decision |
| 24/09/2024 | 0800/1000 | *** |  DE | IFO Business Climate Index |
| 24/09/2024 | 0900/1000 | * |  GB | Index Linked Gilt Outright Auction Result |
| 24/09/2024 | 1230/0830 | ** | US | Philadelphia Fed Nonmanufacturing Index |
| 24/09/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 24/09/2024 | 1300/0900 | ** | US | S&P Case-Shiller Home Price Index |
| 24/09/2024 | 1300/0900 | ** | US | FHFA Home Price Index |
| 24/09/2024 | 1300/0900 | ** | US | FHFA Home Price Index |
| 24/09/2024 | 1300/1500 | ** |  BE | BNB Business Sentiment |
| 24/09/2024 | 1400/1000 | *** | US | Conference Board Consumer Confidence |
| 24/09/2024 | 1400/1000 | ** | US | Richmond Fed Survey |
| 24/09/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 24/09/2024 | 1700/1300 | * | US | US Treasury Auction Result for 2 Year Note |
| 24/09/2024 | 1710/1310 |  CA | BOC Governor Macklem fireside chat on "Growth During Uncertainty" | |
| 24/09/2024 | 2210/1810 | US | New York Fed's Roberto Perli |
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